M/S. Tulsidas Khimji Vs. Their Workmen
[1962] INSC 138 (11 April 1962)
11/04/1962 SINHA, BHUVNESHWAR P.(CJ) SINHA,
BHUVNESHWAR P.(CJ) SUBBARAO, K.
AYYANGAR, N. RAJAGOPALA MUDHOLKAR, J.R.
AIYYAR, T.L. VENKATARAMA
CITATION: 1963 AIR 1007 1963 SCR Supl. (1)
675
CITATOR INFO :
R 1964 SC 864 (17) F 1965 SC1499 (7) R 1972
SC 70 (11) RF 1972 SC 299 (11) RF 1976 SC1455 (21)
ACT:
Industrial Dispute-Bonus-Profit sharing
bonus-Customary festival bonus-Quantum of-Deductions from profits for
income-tax purposes in partnership firm-Nature of control of Supreme Court over
Tribunal-Importance of Rules of Supreme Court-Industrial Disputes Act, 1947 (14
of 1947).
HEADNOTE:
The appellants are a registered partnership
firm. The firm carries on business in the name of Messrs. Tulsidas Khimji.
It has six partners. It carries on four
different kinds of business. The respondents are workmen employed under the
firm.
Disputes arose between the appellants and the
respondents and the question referred to the Tribunal was the quantum of bonus
payable to the respondents for the year ending October 30, 1958. The relevant
issue were whether the claim under reference should be restricted to a claim
for profit-sharing bonus or customary bonus on the basis of implied terms of
contract, and whether it was open to the respondents to claim bonus on the
basis of the surplus profits and at the same time claim bonus on the ground of
custom or practice or implied terms and conditions of service, or whether the
workmen should elect the basis on which they claimed bonus.
The Tribunal held that the workmen were
entitled to claim bonus on each of the three alternative bases, namely,
profit-sharing bonus, bonus as an implied term of service and customary or
traditional bonus on the occasion of Divali. The Tribunal fixed the amount of
bonus at onefourth of the total basic wages earned by the workmen during the
year under reference, less the amount of bonus equivalent to one month's wages
already paid for the year under reference. The Tribunal also held that the
workmen had succeeded in proving their claim for traditional or customary bonus
at the uniform rate of one month's basic wages plus dearness allowance. The
Tribunal also held that the amount deductible on account of income-tax was a
little over 5 per cent of the 676 total amounts of gross profits. The Tribunal
also fixed the remuneration of the partners at Rs. 20,000 in all.
Against the award of the Tribunal, the
appellants came to this Court by special leave.
Held, (per Sinha, C. J., Subba Rao, Mudholkar
and Venkatarama Aiyar, jj, Rajagopala Ayyangar, J., dissenting) that a sum of
Rs. 53,000 should be allowed under the head of income-tax. It was not right to
give the employers the double benefit of granting deduction on the basis of
incometax payable by each partner in respect of his share in the profits of the
firm, and at the same time adding the registered firm tax which was paid by the
firm in order to obtain certain reliefs under the Income-tax Act which they
would not otherwise have obtained.
As regards the remuneration to be paid to the
partners of the firm, the amount fixed by the Tribunal was found to be
inadequate, but as this Court does not function as a regular court of appeal
from the Tribunal and its function is merely to see that the law is being
properly administered in accordance with the wellsettled rules of natural
justice, this Court refused to determine the amount of remuneration to be
allowed to the partners.
The Tribunal was fully justified in coming to
the conclusion that the traditional or customary bonus had been established in
this Case. what is important to negative a plea for customary bonus is the
proof that it was made ex gratis and accepted as such or that it was
unconnected with any such occasion as a festival.
This Court refused to allow the respondents
to prove that a bonus could be granted as an implied term of contract of
service. Such a case had not been made out in the statement of the case. This
Court is very strict in enforcing the rules of pleading as laid down in the
Supreme Court Rules.
Those rules have been laid down with a view
to help the court in narrowing down the controversies between the parties and
also for the purpose of giving notice to the other side that a particular
question will be raised and that party should be ready to meet that particular
point.
This Court would not ordinarily permit any
laxity in the matter of pleadings in this Court.
The Graham Prading Co. (India) Ltd. v. Its
Workmen, [1960] 1 S.C.R. 107, and B. N. Elias & Co. Ltd. Employees' Union
v. B. N. Elias & Co., Ltd. [1960] 3 S.C.R. 382, referred 677 The Associated
Cement Companies Ltd. Dwarka v. Its Workmen, [1959] S.C.R. 925, approved.
Per Ayyangar, J.Tbough a firm is regarded as
an entity for the purpose of income-tax, a partnership is not an entity at law
and it is the partners who constitute the employers for all purposes other than
income-tax. It is the tax payable by the individual partners on their share
income from the firm without taking into account any income derived by them
from other sources and without allowing for any losses suffered by them in
their other ventures that would constitute the item of income-tax payable by
the employer which would be the deductable head for the purposes of computing the
available surplus. The registered firm tax paid by the appellant firm has to be
added to the tax payable by the individual partners on their share of the
profits arriving at the total of the income-tax payable by the business. The
amount of registered firm tax payable by the firm should be added to Rs.
53,000/and odd payable by the partners individually in respect of their shares
of profits and thus the sum deductable under the head 'Incometax Payable, comes
to Rs. 60,000.
The amount reasonably allowable for
remuneration to the partners should be Rs. 40,000. This amount was arrived at
by considering the fact that the partners were working for the firm, and if
they had not done so somebody else would have been employed, and he would have
been paid for hi work.
The bonus to be awarded to the respondents
should be reduced from three months' basic wages to the basic wages for a
period of two months.
The declaration granted by the Tribunal with
regard to customary bonus is not justified and the same is set aside.
Millowners' Association, Bombay v. Rashtriya
Mill Mazdoor Sangh, 1950 L.L.,J. 1247, Associated Cement Companies Ltd, v. Its
Workmen, [1959] S.C.R. 925, M/s. Ispahani Ltd.
Calcutta v. Ispahani Employees Union, [1960]
1 S.C.R. 24, Graham Trading Co. (India) v. its Workmen, [1960] 1 S.C.R.
107, B. N. Elias & CO. Employees Union v.
B. N. Rlias & Co., [1960] 3 S.C.R. 382 and The Management of Tooklai
Experimental Station v. Workmen [1962] Supp. 1 S.C.R. 557, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 503 of 1961, 678 Appeal by special leave from the Award dated May 10, 1961,
of the Central Government's Additional Industrial Tribunal, Bombay, in
Reference (CGIT) No. 4 of 1960.
M.C. Setalvad, Attorney-General of India, S.
D. Vimadlal, J. B. Dadachanji, O. C. Mathur and Ravinder Narain, for the
appellants.
C. B. Agarwala and K. R. Choudhry, for the
respondents.
1962. April II. The Judgment of Sinha, C.J.,
Subba Rao, Mudholkar and Aiyar, JJ, was delivered by Sinha, C. J., Ayyangar,
J., delivered a separate Judgement.
SINHA, C. J.-This appeal, by special leave,
is directed against the award dated May 10, 1961, made by the Central
Government's Additional Industrial Tribunal (Shri Salim M. Merchant) Bombay, in
Reference No. 4 of 1960, on a reference made by the Central Government under
cl. (d) of sub-s. (1) of s. 10 of the Industrial Disputes Act (XIV of 1947).
The main point in controversy between the parties relates to the question of
bonus, either traditional or customary bonus and profitsharing bonus.
The appellants are a partnership firm,
registered under the Indian Partnership Act, 1932, and have their office at 46,
Veer Nariman Road, Fort, Bombay 1. The firm carries on business in the name of
Messrs. Tulsidas Khimji and for the relevant year end October 31, 1958, the
partners were (1) Shri Karsondas Tulsidas (2) Shri Ranchhodas Goculdas(3) Shri
Narandas Tulsidas (4) Shri Moolsing Karsondas (5) Shri Shantu Karsondas and (6)
Shri Narendra Banchhodas. They are closely related to one another. The first
two Partners aforesaid have been associated with the firm for about 40 years
the third for about 679 35 years, the fourth for about 15 years, the 5th for
about 8 years and the 6th for about 5-6 years. At all material times, the six
partners had been working for and in the interest of the firm, which carried on
different kinds of business, namely, (1) Clearing and Forwarding Agents, (2)
Godown Keepers, (3) Insurance Agents and (4) Cotton Supervisors and
Controllers. For carrying on these different kinds of business, they maintained
four different and distinct departments. The respondents are workmen employed
under the firm. The question referred to the Tribunal was "quantumof bonus
payable to workmen for the year ended October 31, 1958". A number of
issues were raised before the Tribunal., of which it is only necessary to
notice the 4th and the 5th issues, which are as under:
"4. Whether the claim under reference
should be restricted to a claim for profit-sharing bonus or customary bonus or
on basis of implied terms of contract? 5.Whether it is open to the workmen to
claim bonus on the basis of surplus profits, and at the same time claim bonus
on the ground of custom and practice or implied terms and conditions of
service? Or whether the workmen should elect the basis on which they claim
bonus? The union of the workmen had claimed profit sharing bonus at the rate of
6 months' wages (inclusive of Dearness Allowance) and traditional or customary
bonus at a rate, which is not clear but which may be said to be either three
months' or one month's wages, plus dearness allowance, on the occasion of the
Dewali festival. The difficulty in clearly stating the case for the workmen is
that they were not clear in their own minds as to whether they were claiming
the customary or traditional bonus as one of the implied terms of their
employment or for the special festival occasion of Dewali.
680 It was not even clear whether the claim
for 6 month's wages, inclusive of dearness allowance, was the total claim for
bonus or was in addition to the traditional or customary bonus, either implied
or as festival bonus on the occasion of Dewali. That accounts for the form of
the issues set forth above. The appellants conceded only one month's basic
wages as bonus which had already been paid, and contested the claim for
traditional or customary bonus either as an implied term of contract of Service
or as a festival bonus.
As there was some confusion about the claim
of the respondents, the Tribunal, after referring to a number of documents and
oral statements, came to the conclusion that the respondents had claimed by way
of maximum bonus, 6 month's wages on a profit-sharing basis, and that the
minimum was the claim for customary or traditional bonus of three months' basic
wages and one month's dearness allowance. On Issue No. 4, the Tribunal decided
that those were alternative claims, and that it was not necessary for the
workmen to elect any one of the alternatives. The Tribunal pointed out that
till the decision of this Court in the case of The Graham Trading Co. (India)
Ltd. v. Its Workmen (1) a clear distinction was not made in respect of claim
for bonus as an implied term or condition of service and at a customary or
traditional bonus, and the respective tests to determine them. The Tribunal,
therefore.. held that the workmen were entitled to claim bonus on each of the
three alternative basis, namely, (1) Profit sharing bonus, (2) bonus as an
implied term of service and (3) customary or traditional bonus on the occasion
of Dewali. The Tribunal pointed out that the appellants had already paid to its
workmen bonus equivalent to one month's basic wages, which amounted to Rs;.
20,780/. In order to determine the question of the first kind of bonus, namely,
profit-sharing bonus, the Tribunal had to determine (1) (1960) 1 S.C.R. 107. 681
the available surplus. In order to do that, it had to grant certain deductions
from the gross profits. The appellants claimed deductions under a number of
beads, but we are concerned only with two out of them, namely, (1) whether the
appellants' claim for deduction of 51 % out of the gross profits on accounts of
Income-Tax was justified, and (2) what should be the amount of remuneration for
the six partners, in respect of which also deduction may be granted.
The Tribunal decided that the amount of tax
payable by the firm, as such, should be deducted and not as claimed by the
appellant. On that basis, the Tribunal found that the amount deductible on
account of Income-Tax would come to a little over 5% of the total amount of the
gross profits. As regards the remunerations of the partners, the Tribunal fixed
a lumpsum of twenty thousand rupees, on a basic which is not easily discernible
from the award, and may be said to be more or less conjectural. After making
provision for the prior charges on the amount of the residuary surplus, the
Tribunal came to the conclusion that a bonus equivalent to 1/4th of the total
basic wages earned by the workmen during the year under reference, i.e., the
year ended October 31, 1958, would be justified. It then turned to the question
of the alternative claim of the workmen to three months' basic wages, plus one
month's dearness allowance, either as an implied term of conditions of service
or as customary or traditional bonus. On a consideration of the decisions of
this Court, and other decisions of High Courts and Tribunals, it came to the
conclusion that though the respondents may not have succeeded in establishing
their claim on the basis of implied terms of contract, they had succeeded in
proving their claim for traditional or customary bonus at a uniform rate of one
month's basic wages plus dearness allowance. In the result, the Tribunal
awarded to the workmen bonus equivalent to 1/4th of the total basic wages, 682
less the amount of bonus equivalent to one month's wages already paid for the
year under reference, on the same terms and conditions as had been prescribed
in the award in respect of the previous year ended October 31, 1957.
Against this award, the firm has come up in
appeal. There is no cross appeal by the workmen, even though, on the findings
recorded by the Tribunal, they were found entitled to three months' wages, by
way of profit sharing bonus and one month’s wages plus dearness allowance by
way of traditional or customary bonus on the occasion of Dewali.
Substantially, three questions were raised
before us on behalf of the appellants, namely, (1) that deduction for
income-tax, in order to arrive at the actual figure of available surplus,
should have been, not on the basis of what income-tax is actually payable or
has been is in respect of the registered firm, but on a notional basis, which
may be analogous to the case of a registered company, or on the basis of the
Tax payable on the lumpsum income of 1.95 lakha by an unregistered firm, or on
some other basis which may have some resemblance to what each one of the
partner,% has to pay in respect of his income : (2) that the partners' remuneration
should not have been fixed by the Tribunal at Rs. 20,000/-, by a rule of thumb,
but should have been fixed on the basis of reasonable remuneration which the
firm should pay to the partners for running its business in the four
departments, aforesaid. In this connection, it was said that if Rs. 96,000/-,
as claimed by the appellants, was thought to be too high, a figure of Rs.
48,000/which is half the amount claimed, would be highly reasonable in the
facts and circumstances of the business of the firm; and (3) that the Tribunal
had misdirected itself in arriving at a finding that 683 the workmen had
succeeded in establishing their claim to traditional or customary bonus at a
uniform rate of one month's basic wages plus dearness allowance.
We shall take up the points in the order
indicated above.
It is not contested on behalf of the
respondents that some deduction has to be made on account of income-tax, but
their learned counsel has contended that the tax should be what the firm as
such has to pay by way of income-tax. It was said in this connection that a
registered firm is a legal entity for the purposes of income-tax, and that the
Tribunal was perfectly justified in giving credit only for the sum of about Rs.
10,000/-, worked out on that basis. On the other hand, it was contended on
behalf of the appellants that 51.5%, or whatever may be the actual rate of
income-tax payable by a company should have been deducted.
Alternatively, it was argued that 7 annas in
a rupee would be a fair basis. In our opinion, it would not be right to equate
a registered firm to a company for the purpose of deduction of income-tax. It
is true that the income-tax deduction has to be made on a notional basis, laid
down by a Bench of 5 Judges in this Court, in The Associated Cement Companies
Ltd., Dwarka Cement Works, Dwarka v. Its Workmen (1). But even so, the notional
basis must have relevance to the law of income-tax in respect of firms. In this
connection, the following alternatives were suggested on behalf of the appellants,
namely, (1) income-tax at 7 annas in a rupee which will wipe off about rupees
85 thousand or about 45% of the profits; (2) a sum of about Rs. 53,000/odd on
the basis of income-tax payable on an income of 1.95 lakhs of the firm on the
footing of the partners paying the tax at the appropriate rate on their shares
of the income, this would account for about 27% of the profits, after adding
the ten thousand rupees, which is a (1) (1959) S.C.R. 925.
684 registered-firm tax, as already
indicated; (3) tax of one lakh forty thousand odd on the basis of the firm
being unregistered, which the income-tax authorities are entitled to do in
certain circumstances this would account for about 70% of the profits; (4)
income tax amounting to roughly 68 thousand rupees, plus ten thousand rupees in
respect of registered-firm tax, on the basis of the tax payable by the partners
on the income of the registered firm at the rate applicable to their world
income, on their shares in the firm. We have no hesitation in rejecting the
first suggestion of deducting about 7 annas in the rupee because that will be
on the basis of a tax on a corporation, the basis which we have already
rejected as unfair. Even more unacceptable is the suggestion of knocking off a
lakh and 4 thousand rupees, which has the effect of setting apart the major
share of the profits for income-tax on a highly notional basis. The 4th
alternative of taking into account the world income of the partners of the firm
would be equally unjust and unfair to the workmen in the case of the members of
the firm being very rich persons. This course would be highly objectionable
from another point of view, which is a very important consideration, namely,
that in order to determine the bonus payable for a particular year of working
of the firm, the word income of the partners of the firm may have to be
determined in the first instance, which process may take years. As the
appellants themselves have rightly stated that the deduction on account of
income tax has to be on a notional basis, the basis has got to be such as to be
readily ascertainable, and that can only be done by making calculations on the
profits of the firm itself, for the particular year. The last alternative of
allowing deduction under this head of calculating income tax on the actual
figures of the profits of each of the partners separately appears to be
reasonable, because the figures 685 are known and the tax of each constituent
members of the firm can be easily calculated on the basis of his share.
But it has been argued On behalf of the
respondents that the amount of income-tax payable by the firm as such, viz.,
about Rs. 10,000/should be permissible deduction and not what each partner had
to pay on his share of the profits, because it is the firm which is the
employer and which can claim deduction under this head. But this contention
cannot be pushed to its logical conclusion because a firm is not a legal person
within the meaning of the Industrial Disputes Act. It is the partner of the
firm who are the employers.
It is that fact that has to be taken into
account in considering the question of income-tax, even as in other matters
like remuneration, etc.; i. e., the amount of tax payable by each: partner, qua
the business of the firm, irrespective of their other sources of income or
loss, because national is quit different from the actual, though not wholly
dissociated from it. But the question still arises whether the registered-firm
tax can also be added to the figure of income-tax arrived at by the process just
indicated. In our opinion, it would no',-, be right to give the employers the
double benefit of granting deduction on the basis of income-tax payable by each
partner in respect of his share in the profits of the firm, and at the same
time adding the registered-firm tax, which is paid by the firm in order to
obtain certain reliefs under the Income Tax Act, which they would not otherwise
have obtained. Hence, as a result of the foregoing considerations, the sum of
53 thousand rupees, in round figures, should be allowable under this head of
income-tax. Even that figure, it was admitted, would represent about one
quarter of the profits.
The next question that falls to be determined
is what amount should be allowed under the head Remuneration to the partners of
the firm'. In this 686 connection, it has been found by the Tribunal that the
claim of the partners that they devoted their whole time to the business of
this firm only, is not correct; and that the individual partners, on their own
account, and certainly as partners of another firm, have been carrying on their
other business activities. It has also to be borne in mind that the partners
have not been able to adduce any reliable date to determine the amount of time
and energy which they devote to the business of the firm in question. It is
equally true that the sum of Rs. 20,000/fixed by the Tribunal, under this head,
amounting roughly to 10% of the gross profits is more or less conjectural. We
know that the sum of Rs.
4,60,000/represents roughly the wage bill for
the year in question. Comparing the sum allowed by way of remuneration to the
partners to this figure, it appears to us that the amount fixed by the Tribunal
errs on the said of inadequacy.
But this Court is not in a position to come
to any definite conclusion of its own the record as it stands, assuming that it
is open to this Court to record a finding, which is more or less one of fact,
in disagreement with the finding of the Tribunal. It must be added that this
Court does not function as a regular Court of Appeal from the Tribunal.
Its function is merely to see that the law is
being properly administered, in accordance with well settled rules of natural
justice. Hence, we would not embark upon a fruitless task of determining a
figure which will not have any substratum of solid facts and figures to support
our conclusion.
The remaining question of traditional or
customary bonus has been pressed upon us on behalf of the appellants. It has
been argued that the Tribunal has not followed the rulings of this Court on the
question of a bonus of the kind we are now dealing with. The Tribunal has come
to the conclusion that the workmen have proved that bonus at a uniform rate of
one month's basic wages plus 687 dearness allowance, on the occasion of Dewali,
has been paid throughout the period of more than 15 years, between 1940-41 and
1956-57. That is a finding of fact. But it has been contended that according to
the judgments of this Court, in order to establish the claim for a bonus of
this kind, four conditions must be fulfilled, namely, (1) that the payment has
been made over an unbroken series of years; (2) that it has been so made for a
sufficiently long period, (3) that the payment has been made at a uniform rate
throughout, and (4) lastly, that it has been paid even in years of loss, and
did not depend upon the earning of profits. It has been found by the Tribunal
that the first three conditions, if they can be so called, have been fulfilled,
but that the last one has not been established and could not be established
because the firm was singularly fortunate in having an unbroken record of
profits, year after year. It was vehemently argued on behalf of the appellants
that as this last condition has not been fulfilled, the Tribunal was not justified
in law in coming to the conclusion that the claim of traditional or customary
bonus at the rate indicated above had been established. In our opinion, this
contention is not acceptable for several reasons. Firstly, the four so-called
conditions are not really in the nature of conditions precedent but are
circumstances which have been taken into account by this court in The Graham
Trading Co. (India) Ltd. v. Its Workmen (1) for coming to a conclusion as to
whether or not a claim to customary or traditional bonus had been made out. In
the case just referred to, this Court pointed out that the Tribunal has to
consider those four circumstances. That those are circumstances, and not
conditions precedent, is shown by the fact that this Court has pointed out that
the length of the period will depend upon the circumstances of each case. A
condition precedent, as (1) (1960) 1 S.C. R. 107.
688 such, has to be more definite than one
which depends upon the circumstances of each case. Secondly, there is no
rational ground for holding that payment even when there were losses is a
condition precedent because, as has happened in this case a company or a firm
may have an unbroken record of profits ever since it started working.
Hence, if it were to be held as a condition
precedent, payment of bonus satisfying the three conditions aforesaid but not
this one, for however long a period, would have to be held as insufficient to
establish the claim for this kind of bonus. Between profits and loss in a
particular year, there may be a very small gap. The loss may be of one rupee,;
and similarly profits may be equally nominal. The third alternative, which may
be supposed, is neither lose nor profit. According to the appellants'
contention, the case for such a bonus is made out in the first supposition of a
nominal loss, but not of the second or the third alternatives. The law cannot
be founded on such unsubstantial considerations. The question in such cases is
always one of substance, and not of form. We cannot, therefore accept the
submission that loss substantial or otherwise is a sine, qua non. The
observations of this Court in the decisions referred to above must be
understood as based on considerations of substance and not of form.
Such a bonus has reference to a special occasion
like a festival, for example, the Pujas in Bengal and the Dewali in Western
India--occasions which are generally utilised by employers to reward the
services of their employees. Hence in our opinion, what is more important to
negative a plea for customary bonus would be proof that it was made ex gratia,
and accepted as such, or that it was unconnected with any such occasion like a
festival, as laid down by this Court in the 689 case of B.N. Elias & Co.
Ltd. Employees' Union v. B.N. Elias & Co. Ltd. (1). In our opinion,
therefore, the Tribunal was fully justified in finding that the traditional or
customary bonus had been established in this case, notwithstanding that it had
not been shown, as it could not have been shown, that it was paid in a year of loss.
On behalf of the respondents an attempt was made to show that such a bonus
could be granted as an implied term of contract of service. But as such a case
has not been made in the statement of the case in this Court, we did not allow
that case to be made out at the time of the arguments. We must make it clear
that this Court has to be very strict in enforcing the rules of pleading, as
laid down in the rules of this Court bearing on the question of statement of
case of the parties. These rules have been laid down with a view to help the
Court in narrowing down the controversies between the parties and also for the
purpose of giving notice to the other side that a particular question will be
raised, and that party should be ready to meet that particular point. This
Court would not ordinarily permit any laxity in the matter of pleadings in this
Court, and litigants and their legal advisers must take note of what we have
said so often in the course of arguments in a number of cases coming before us
recently.
It remains to consider what is the effect of
our finding on the first question relating to deduction on account of
income-tax on the award made by the Tribunal. At page 129 of volume 1 of the
paper book, there is a statement of the profits of the firm between the years
1943-44 and 1957-58 and at page 157 of the reasons of the Tribunal in volume II
appears a tabular statement of the bonus paid for the corresponding period of
years, which has consistently been equivalent to three months' (1) [1960] 3
S.C.R. 382.
690 basic wages, which is the bonus allowed
in respect of the year in question also. This was so in spite of the fact that
the profits have fluctuated considerably from year to year. Even after payment
of the bonus as directed by the Tribunal, and making allowance for the higher
amount of income-tax as determined by us, the appellants are left with a
substantial amount by way of their share of the profits.
It would thus appear that the Tribunal has
not been too generous to the workmen when it allowed a consolidated bonus of
three months' basic wages minus the amount already paid to them.
In the result, the appeal fails and is
dismissed ,with costs.
AYYANGAR,J.-I regret my inability to agree in
the order proposed by my Lord the Chief Justice I he facts of the case and the
points in dispute arising for decision have been exhaustively set out in that
judgment and I consider it unnecessary to repeat them. It will be seen that the
controversy is confined to two matters : (1) the quantum of the profit-bonus,
if any to which the respondents would be entitled, for Samvat year 2013
(1956-1957) and (2) the correctness of the declaration by the Tribunal in its
award now under appeal that the respondents are entitled to customary or
festival bonus on the occasion of Diwali, and these I shall deal in that order.
Taking up first the question of profit-bonus.
Its quantum admitted depends upon the surplus available for distribution. The
Tribunal has awarded a bonus equivalent to three months' basic wages, this
including the bonus equivalent to one month's basic wage already paid by the
appellant-firm. The figure of 3 months' basic wages has been derived by
following the formula enunciated by the Full Bench ,of the Labour Appellate
Tribunal in Mill Owners Association, Bombay v. Rashtriya Mill Mazdoor Sangh (1)
which has received the approval of this (1) [1950] L.L.J. 1247.
691 Court in several decision of which it is
sufficient to refer to the Associated Cement Companies Ltd. v. Its Workmen (1).
The gross profit i.e., the net profit earned
by the firm during the relevant year after adding back items which are
inadmissible for the purpose of calculating bonus for workmen for that year was
Rs. 1,95,060/-. Both the parties before us accepted this figure as correct and the
only dispute related to the items to be deducted from it for the purpose of
ascertaining the residuary surplus available for distribution among the parties
entitled to a share in it.
Out of this sum of Rs. 1,95,060/the Tribunal
deducted the following:
1. For income tax. 10,305/
2. For return on partners' capital. 9,810/
3. For return on working capital. 5,595/
4. Remuneration for the six partners. 20,000/45,710/which
left a residuary surplus of Rs. 149,350/out of which bonus equivalent to three
months' basic wages absorbing Rs. 62,340/was awarded to the workmen leaving Rs.
87,010/. as the share of the employer and the Tribunal added that the letter
"would be adequate share for the Company providing. Rs. 4,250/for gratuity
and taking into consideration the income tax rebate on the amount of bonus
awarded." Out of the four items of deductions those in controversy before
us are two (1) the quantum of the income tax deductible, and (2) the
remuneration allowable to the partners. As regards the first item, viz., income
tax payable, I am in respectful agreement with the reasoning and conclusion of
my (1) (1959) S.C.R. 925.
692 Lord the Chief Justice that where the
employer is a firm that is Registered under s. 26-A of the Indian Income Tax
Act the income tax that the employer is entitled to deduct, is not the
"'Registered firm tax" on the gross profits of the firm but the tax
that would be payable on the share income of each partner. Both the learned
Attorney-General for the appellants and Mr. Aggarwala for the workmen laid
stress on the fact that the deduction from gross profits of income tax for
computing the available surplus has been referred to by this Court as a
"notionar" item (vide e.g. p. 381 1960 3 S.C.R. 378) and each of them
developed an argument founded on this description. 'Relying on the
"notional" character of the tax deduction, the learned Attorney
General contended that the figure deducted ought to be the some whether the
employer was a company, firm or any other unit of assessment, viz., 7 annas in
the Rupee at one age and 51% when the income tax payable by a company was
raised to that figure. Mr. Aggarwala on the other band submitted that in the
case of a registered firm one should ignore the tax the individual's composing
the firm were under an obligation to pay on the profits desired but the
Tribunal had to take into account that only "the registered firm tax"
which had been imposed on registered firm ever since the Finance Act of 1956. 1
consider that both these arguments proceed on a misapprehension or a
misunderstanding of the real import of the expression "Notional" in
the context in which the term has been used by this Court. The expression
"notional" has been used to distinguish it from the actual tax
payable by the employer for the year for which profits is being calculated and
the reason why the actual tax paid was discarded as a proper deduction was thus
explained by this Court in the Associated Cement Coy's case. "'The formula
for awarding bonus to workmen is based on two considerations; first that Labour
is entitled to claim a share in he 693 trading profits of the industry because
it has partially contributed to the same In consequence in working out the
formula it should not be ignored that the formula proceeds to deal with the
labour's claim for bonus on the basis that the relevant year for which bonus is
claimed is a self sufficient unit and the appropriate accounts have to be made
on the notional basis in respect of the said year. It is because the bonus year
is taken as a unit self-sufficient by itself that the refund amount received by
the employer being the refund paid by him in previous years is not included on
the credit side Similarly, the same principle governs losses incurred in
previous years which the employer is entitled to have claimed under s. 24 (2)
during the bonus year Similarly, that the employer was not required to pay tax
during the bonus year as a result of the adjustment of previous year's
unabsorbed depreciation has no relevance in determining the available surplus
from the trading profits of the bonus year. It is on the same ground viz., that
the unit is the bonus year and the trading profits of that year determining the
quantum of bonus available that the initial and additional depreciations besides
a statutory depreciation are held not allowable".
But after these factors which are either
exceptional being either special reliefs for the purpose of aiding an industry
or reflecting the credits or debits attributable to different year are eliminated,
one has to work out the actual tax payable on the income under the relevant
provisions of the Income Tax Act before the figure of available surplus which
could be distributed between the employer and the workmen could be ascertained.
The rate of 7 annas in the Rupee was applied by this court to cases where the
employer was company to whom that rate applied under the then Income Tax Act,
and not as any "notional" figure to be deducted.
694 It has to be borne in mind that the
calculations are for the purpose of ascertaining the available surplus and so
have to be related to the amount available after payment of the tax.
The fact that certain items such as, for
instance, the penalty payable for defaults under the Income Tax Act or credits
received there under which are unrelated to the normal tax payable on the
income derived by the employer are ignored, does not imply that the amount
deductible under this head is wholly unrelated to the provisions of the Income
Tax Act or to the amount that would be available as surplus in an idealised
condition, i. e. after elimination of the inadmissible factors. It is only in
that sense that the figure is notional i. e. in the sense that it does not take
into account the actual tax payable. But it is real and otherwise then notional
if the irrelevant factors are excluded. It is for this reason that 1 find no
basis for the argument that in the case of an employer such as the one we are
concerned with, the rate of tax applicable to companies for the year in
question is relevant as affording any basis for computing the amount deductible
under the head "income tax". I therefore reject without hesitation
the main submission of the learned Attorney General.
For the same reason I consider that the
contention urged by Mr. Agarwala should also be rejected. If the income tax
payable has to be related to the actual available surplus, taking the business
as a unit and after eliminating the factors that are not relevant for
determining the tax payable for the bonus year in question and in respect of
that business income, we must necessarily reach the conclusion that it is the
tax payable by the several partners who constitute the firm on their share
Income from the business that affords a real basis for computing the deduction
under this head. In saying this I have not overlooked the 695 fact that for the
purpose of the Indian Income Tax Act a firm is a unit of assessment and that in
the case of a registered firm, there is a special "registered firm"
tax payable by that unit since 1956. Though a firm is regarded as an entity for
the purpose of Income Tax Act, it is undeniable that a partnership is not an
entity at law and it is the partners who constitute the employers for all
purpose other than for income tax. It is in this view that I concur in the
opinion expressed by my Lord the Chief Justice that it is the tax payable by
the individual partners on their share income from the firm without taking into
account any income derived by them otherwise i. e. their word income, without
allowing for any losses suffered by them in their other ventures, that would
constitute the item of income tax payable by the employer which would be the
deductable head for the purpose of computing the available surplus.
I, however. do not agree with my Lord that
the registered firm tax paid by the appellant-firm is not to be added to the
tax payable by the individual partners on their share of the profits in
arriving at the total of the income tax payable by the business.
As regards firms registered under s. 26-A of
the Income tax Act the position since 1956 is briefly this. Income tax as
specially low rates is assessable on the profits of a registered firm, but not
super tax. The partners of the registered firm are liable to be charged in
their individual assessments to both income tax and super tax in respect of
their share of profits derived from the firm. There is thus an element of
double taxation-in the case of registered firms, in respect of income tax but
not for super tax and only a partial relief against the double taxation is
afforded by s. 14(2) (aa) of the Income Tax Act. What I desire to point out is
that the "registered firm tax" is as much a tax 696 paid by the
partners together and is as much a deduction out of the surplus profits available
for distribution as the income tax paid by the partners individually. I do not
therefore see any basis for the distinction between the ",registered firm
tax" paid by the partners together and the individual income tax payable
on their share income by each of the partners. In my opinion, subject to the
rebate allowed under s. 14 (2) (aa) the amount of "registered firm
tax" payable by the firm should be added to the, Rs. 53, 000/and odd
payable by the partners individually in respect of their share of profits. Making
allowance for the rebate I would, therefore, compute the sum deductible under
the head "income tax payable" at Rs. 60,000/-.
The next item in dispute is as regards the
sum allowed as the remuneration for the six partners for carrying on the work
of his firm. I respectfully agree wit the conclusion of my Lord that the figure
of Rs. 20,000/allowed by the Tribunal is not based on any relevant evidence but
is merely a conjectural figure and cannot, therefore, be accepted.
The proper way to have approached the
question would have been for the parties to have led evidence as to what would
have been the reasonable remuneration payable to strangers if the work had been
entrusted to and performed by such persons. It is common ground that neither of
the parties nor the Tribunal approached the Problem from this point of view. In
this state of circumstances two courses would be open to this Court (1) that
the matter be remitted to the Tribunal, so that parties might adduce necessary
evidence on these lines for a satisfactory finding to be recorded, or (2)
determine the figure ourselves. Mr. Agarwala learned counsel for the workmen
suggested that if we did not agree with the finding of the Tribunal that Rs.
20,00'/-was reasonable 697 remuneration for the six partners to have attended
to the work of the firm, we might remand the case to the Tribunal for evidence
being led and fresh findings reached and an award passed on the basis of such
findings. The learned Attorney-General on the other hand, suggested that as the
appeal was concerned, with the bonus only for one year and that as evidence on
these lines would be led if any question arose in regard to the later years, it
was not necessary that the parties should be driven to incur more expenses in
further proceedings before the Tribunal and that in the interests of both the
parties we might ourselves record a finding as regards the figure which we
considered reasonable taking into account the materials already on the record.
He further pointed out that though before the Tribunal the appellants had
claimed Rs. 96,000/as the reasonable remuneration allowable to these partners
he was prepared to step down the claim to Rs. 48,000/-if that would be accepted
by the respondents. Though Mr. Aggarwala first appeared to consider that Rs.
48,000/was reasonable, he however, latter stuck to the position that if we did
not accept the finding of the Tribunal that Rs. 20,000/was reasonable,
remuneration the case should be sent back for a computation on the basis of
further evidence which the parties might adduce.
Bearing in mind that the dispute before us relates
only to one year and that the parties might adduce more satisfactory evidence
in regard to latter years if there should be a disputes I consider that it
would not be worthwhile as it would impose an unnecessary strain on the
parties, to have the matter remitted to the Tribunal for a fresh finding on the
Issue. In the circumstances, I consider, that the best course would be for this
Court to determine the reasonable remuneration on the basis of the materials
already on record.
It is in evidence that the managerial staff,
who is undoubtedly working under the partners, 698 were paid a remuneration of
Rs. 750/-p. m. That, in my opinion would afford some indication of the scale or
wages in this concern payable to the superior staff. If a paid manager instead
of a partner were employed, his remuneration would reasonably be taken as Rs.
1,0001-P.M. Now there were four separate departments in this concern carrying,
on four different types of business, viz. Clearing & Forwarding Agents,
Godown-keepers, Insurance Agents and Cotton Supervisors and Controllers. If
four persons had been employed in each of these departments as superior
Supervisory staff the remuneration payable to them would be Rs;. 4, 000/-a
month or Rs. 48,600/. for a year. Having regard to this mode of approach I
consider that the figure suggested by the learned Attorney General was
reasonable and I was therefore not surprised that Mr. Aggarwala at first seemed
to agree that this would be a reasonable figure. I would only add that even if
each of the heads of the four departments were paid only Rs. 750/-P.M. the
total remuneration would come upto Rs.36,000/1, therefore, consider that the
amount reasonable under this head cannot in any event be less than Rs.
40,000/-. 1 would therefore increase the item 'Remuneration of partners' in the
award now under appeal from Rs. 20,000/. to Rs. 40, 000/-.
I shall now proceed to consider the effect of
these revisions on (a) the surplus available for distribution, and (b) the fair
share which could be allowed to labour for being distributed as bonier. On the
basis of the revised figuresthe fresh computation would be:
Gross profit : 1,95,060/Less 1. Income-tax
60,000/
2. Return on partners' capital 9,810/
3. Return on working capital 5,595/
4. Remuneration for the partners 40,000/1,15,405/699
Net available surplus 79,655/or roughly 80,000/-. Even if this is divided
equally between the employer and labour, making no provision for reserves etc.
it would yield only Rs. 40,000/as the share of labour available for
distribution as bonus. The total amount which would be payable if a bonus of a
month's basic wages were awarded would be Rs. 20,780/-. The utmost that could
be allowed to labour would be a bonus equivalent to two months' basic wages and
even taking into account the concession that the learned Attorney-General made
that the return on partners' working capital be computed not at 9 per cent as
the Tribunal has done, but at 6 per cent; the result would not be very
different, for that would add only Rs. 3000/and odd rupees to the surplus pool.
In my opinion therefore, the bonus that should be awarded to the respondents
should be reduced from three months' basic wages to basic wages for a period of
2 months' which would absorb Rs. 41, 560/and leave something less than Rs.
46,000/to the employer instead of the Rs. 87,000/which the Tribunal considered
as a reasonable apportionment for the employer.
The next matter in controversy is whether the
Tribunal was right in declaring that the workmen were entitled to customary
festival bonus of one months' basic wage on the occasion of Diwali. The
question of customary bonus has been the subject of consideration by this Court
on more than three occasions. Before referring to these decisions it is
necessary to restate some facts which are not in controversy: (1) It is an
admitted fact that a bonus has been paid of one month's basic wage from Samwat
year 1997 (1940-41) to Samwat year 2013(1956-57) i. e., continuously and
without any break until disputes arose in respect of the year now in
controversy-1957-58. (2) Though there is some little controversy a,% to the
precise 700 day when it was paid in relation to the Diwali festival whether it
was on that day or the day succeeding etc., it is common ground that it was
paid at or about the time of Diwali and obviously to enable the workmen to meet
the extra expenses which the festival involved. This has to be taken along with
the fact that Diwali is one of the most or the most important Hindu festival in
the Bombay area, (3) that during,the several years for which we have evidence
i. e. from 1940 onwards the firm has been making more than adequate profits to
enable it to pay this amount as bonus.
In other words, during all these long years
there has not been any year when the firm has either sustained a loss or has
been in receipt of less than adequate profits to justify this payment of bonus
of one month's basic wage.
In the light of these admitted facts the very
narrow point of controversy before us turns on whether it is or it is not a
necessary essential prerequisite for the establishment of a claim to customary
festival bonus that it should have been paid in a year of loss or at least in a
year when there was no adequate profit to justify the payment.
The requisite conditions for the workers to
establish a claim to customary bonus have been laid down in at least three
decisions of this Court to be immediately referred to.
It was, however, not the contention of any of
the parties that these rulings were erroneous or required reconsideration. The
only point urged before us by either side was as to the proper construction of
the requirements as laid down in these decisions. I am emphasizing this because
in the appeal before us the court is not called upon to decide afresh the
circumstances in which customary bonus would be payable but its task is only to
construe the previous decisions of this Court as to the conditions laid down in
them as necessary for establishing such a custom.
701 The point on which the learned Attorney
General for the appellants laid stress was that each one of the decisions of
this Court had laid down as one of the essential condition for the establishment
of a right to customary bonus that the said payment should have been made in a
year in which there was loss and as admittedly this condition was not satisfied
in the case of the appellants' business, the declaration granted by the
Tribunal was unjustified.
I shall now proceed to refer to the
authorities : Messrs Ispahani Ltd. Calcutta v. Ispahani Employee's Union (1)
and Graham Trading Co. (India) Ltd. v. Its Workmen(2) ) were heard by the same
Bench and the judgment in both were delivered by Wanchoo J., the earlier on May
6. 1959 and the latter on the next day. One of the points involved in
Ispahani's case was whether the workmen were entitled to Puja bonus for 1953.
It was an appeal by special leave from a judgment of the Labour Appellate
Tribunal, Calcutta. Tile Industrial Tribunal had held that it had not been
established that puja bonus had been paid at uniform rates for a sufficiently,
long and unbroken period, and rejected the claim for puja bonus for 1953. There
was an appeal by the workmen against this award of the Tribunal which was
allowed by the Labour Appellate Tribunal which held that the claim to puj'a
bonus had been established. This decision of the Appellate Tribunal was upheld
by this Court. Wanchoo, J., summarised the facts upon which this finding was
based, in these terms "In the circumstances, it was established in this
case that (1) the payment was unbroken and (2) it was not paid out of bounty
due to profits having arisen, for it was paid in some years of loss also".
(1) [1960] 1 S C.R. 24.
(2) [1960] 1 S.C.R. 107.
702 In the decision rendered the next
day-Graham Trading Co. v. Its Workmen (1) the learned Judge made a more
elaborate examination of the conditions for the establishment of a claim to
festival bonus. He first drew a distinction between puja bonus as an implied
term of employment on the one hand and as a customary or a traditional payment
on the other. He observed:
"It is, however, clear that puja bonus
which is usually paid in Bengal is of two kinds ;
viz. (1) where it is paid as an implied term
of employment and (2) where it is paid as a customary and traditional payment
We have considered the tests to be applied where it is a case of payment on an
implied term of employment in Messrs. Ispahani Ltd. v. Ispahani Employees'
Union and we need not repeat what we have said there. In the present case it
has bead pointed out by the company that payments which had' been made in the
past years from 1940 to 1952 could not be considered as based on an implied
term of employment in the circumstances of this case The question, however,
whether the payment in this case was customary and traditional still remains to
be considered. In dealing with puja bonus based on an implied term of
employment, it was pointed out by us in Messrs. Ispahani Ltd. v. Ispahani
Employees' Union that a term may be implied, even though the payment may not
have been at a uniform rate throughout and the Industrial Tribunal would be
justified in deciding what should be the quantum of payment in a particular
year taking into account the varying payment made in previous year. But when
the question of customary and traditional bonus ares for adjudication, the
considerations may be somewhat different. In such a (1)[1960] 1 S.C.R. 107.
703 case, the Tribunal will have to consider
(i) whether the payment has been over an unbroken series of years ; (ii)
whether it has been for a sufficiently long period, though the length of the
period might depend on the circumstances of each case : even so the period may
normally have to be longer to justify an inference of traditional and customary
puja bonus than may be the case with puja bonus based on an implied term of
employment; (iii) the circumstance that the payment depended upon the earning
of profits would have to be excluded and therefore it must be shown the t
payment was made in years of loss.........
(iv) the payment must have been at a uniform
rate throughout to justify an inference that the payment at such and such rate
had become customary and traditional in the particular concern. It will be seen
that these tests are in substance more stringent than the tests applied for
proof of puja bonus as an implied term of employment." Later, dealing with
the facts from which the Court drew an inference that the workmen had
established the right to customary bonus and particularly condition (iii)
italicised earlier, the learned Judge added :
"The condition that the payment should
have been made in years of loss also to exclude the hypothesis that it was paid
only because profits had been made, has also been satisfied, for the evidence
is that payments were made in at least two years of loss." The third case
of this Court in which the point arose was Elia Co. Employees' Union v. Elias
and Co. (1) in which also the judgment of the Court was delivered by Wanchoo,
J. The appeal before this (1) [1960] 3 S.C.R. 382.
704 Court was by special leave from an award
of the Industrial Tribunal and the case of the appellants the employees was
that they were entitled to a bonus irrespective of profit on a scale which they
set out. The Tribunal negatived the case of the employees to bonus on all the
three grounds upon which bonus was payable, viz., profit bonus, as an implied
condition of service and thirdly as customary bonus.
Dealing with the question of customary bonus
of one month's basic wages of the Subordinate staff, the learned Judge said :
"This payment of one month's basic wage
as bonus at puja appears to have continued uninterrupted from the time it
started in 1942 or thereabout upto the time the dispute arose in 1954. The
payment was invariably of one month's basic wage and it appears that it was
paid even in a year of loss." On this ground the appeal was allowed it
regard to this item. Lastly, in the Management of Tooklai Experimental Station
v. Workmen, (1) the judgment was pronounced by Gajendragadkar, J. (who
incidentally was a member of the, Bench which decided each of the three earlier
cases).
Dealing with Puja bonus the learned Judge
observed :
"Customary puja bonus undoubtedly
prevails in many industries in Bengal but there are certain tests which have to
be applied in determining the validity of the claim. The amount by way of puja
bonus, it must be shown, has been consistently paid by the employer to his
employees from year to year at the same rate, that it has been paid even in
year o f loss and that it has no relation to the profit made by the employer
during the relevant year.
The course of conduct spreading over a
reasonably long period between the (1) [1962] 1 S.C.R. 557.
705 employer and the employees in the matter
of payment of puja bonus is of considerable importance in dealing with the
claim of customary puja bonus (vide The Graham Trading Co. (India) Ltd. v. Its
Workmen)." The question now for consideration is whether on these
authorities, reasonably construed it is or it is not a necessary condition for
the establishment of a claim to customary bonus that it has been paid in a year
of loss.
The extracts that I have made from the
judgment of this Court in the Graham Trading Co.'s case where it is referred to
as the third condition and the specified, reference to loss in the three other
decisions, particularly bearing in mind the fact that the same members of the
Court had taken part in these several decisions, and Gajendragadkar, J. took
part in all the four, I feel unable to hold that the learned Judges did not
intend this to be an essential condition. In the Graham case the reason for the
insistence of this conditions is stated viz. that it is only a payment during a
year when there is loss that would negative the payment being a bounty. In
these circumstances I do not consider it possible to construe these judgments
as laying down that payment during a year of loss was merely a relevant circumstance
and not a necessary condition. If, as I have pointed out earlier, what the
Court is now called on to do is only to construe these decisions, and not
consider the question afresh, I feel compelled to hold that in these several
decision this Court did lay down that this was a sine qua non for making good
the claim.
It was suggested during the course of the
argument that there was no difference between a loss of one rupee for the year
and a profit of a similar sum and that if the decisions were literally understood
it would lead to an unreasonable result, for whereas 706 the claim would be
excluded in the event of a losseven though the same be nominal, even the
existence of a nominal profit would enable the claim to be established. I agree
that we are not construing a statute and that in the context in which the
condition has been laid down, viz., that it should negative the payment being
by way of bounty, the expression loss should be understood in the sense of an
inadequacy of profit which would not justify the payment of that bonus. But
where the profits are adequate to enable the payment of the bonus, it appears
to me that these decisions clearly lay down that the right to customary bonus
is not established; for as explained in the Graham Trading Coy's case, the
payment being by way of bounty would not then be excluded. In this connection
it has to be borne in mind that when the right to customary bonus is held to be
established, the workmen are entitled to it in future years even in an year of
loss and a fortiori so in a year when the profits are inadequate to justify
that payment. In these circumstances it stands to reason that there must ban
earlier year in which payment has been made in such circumstances as to serve
as a precedent for the future, i.e., to establish the custom for payment in
later years.
Is in the present case it is admitted that
there has been an adequacy of profits to justify the payment of one month's
bonus during Diwali during all the earlier years the declaration granted by the
Tribunal is without justification and the finding in that regard has to be set
aside.
The result therefore is that I would allow
the appeal in part, reduce the profit bonus to basic wage& for two months
including the one month's basic wage as bonus already paid, and delete the
declaration as to customary bonus.
By COURT-In view of the judgment of the
majority, the appeal stands dismissed with Costs.
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